Fraudulent charges on credit cards and overcharges are commonly experienced in the traditional credit card processing industry. It is not uncommon for a merchant to either unintentionally, or intentionally, over-charge a customer's credit card or present an unauthorized charge to the card. The fraudulent charge can be addressed with the credit card company issuing the card. However, the process is time consuming and does not provide a guarantee of reimbursement to the customer. Additionally, often times with a fraudulent dispute, the customer does not become aware of the fraudulent charge until reconciliation at the end of the statement period, resulting in an additional delay in reimbursement resolution. Overcharges present a different problem. Most companies have a high-end limit for overcharges. When charges are over the limit, the merchant is contacted and a reversal or adjustment is requested. This also happens at the end of the statement period, resulting in additional research into the charges due to the lapse of time.
In a typical overcharge scenario, a merchant neglects to charge a credit card administrator for a portion of a transaction, such as for towing a vehicle to a repair facility as part of a repair. To correct the oversight the credit card is run a second time for a sixty-five dollar towing fee. The second charge results in an overcharge condition that is not evident until the two individual charges are reconciled at the end of the statement period. In another scenario, an additional ten dollars is initially charged to the credit card because the merchant knows the ten dollars is not enough to elicit a dispute, resulting in a fraudulent overcharge to the credit card.
The largest expense that is incurred when using a credit card to settle payments, is the time consuming process of reconciling the credit card statement to the payments that were processed in this manner. In many large credit card administration organizations, there is an entire staff of individuals devoted to this task. Research indicates that it takes at least one person, one week a month to reconcile a statement with as few as three hundred charges. When a charge cannot be reconciled, additional personnel become involved, at an additional expense, to determine how to write off the net adjustments.
Purchasing cards are known in the art as a means of streamlining the traditional purchase order and payment processes for low value transactions. Users, typically corporations and government agencies, find a disproportionate number of small dollar payments, those less than $1,000, make up the majority of payments while representing a small percentage of the dollars spent. The transactional cost of making these payments using the traditional process is the same regardless of the dollar amount of the payment. Often the cost of making a payment exceeds the value of the item being acquired. A purchasing card simplifies the process and reduces the transactional cost.
A purchasing card can be used to track charges that have been executed by buying agents and are most widely used in large corporations to track buyer activity. The merchant card device recognizes that the card being processed is a purchasing card and requires a code to be entered after the card is run. This code can be provided on the billing statement to aide in reconciliation. However, purchasing cards are only effective for providing reconciliation enhancements when used at a merchant whose point of sale card system requests the purchasing code. Most point of sale card readers are not programmed for this functionality. Additionally, a purchasing card does not provide fraud or overcharge protection.
It is also known in the art to add an authorization code field to the claim record on the administrator's database. In this scenario, those individuals responsible for payment to the merchant or claims examiners supply the card number and authorized amount to the merchant and then wait for the merchant to run the card. When the purchase is completed and the authorization prints, the merchant reads the authorization code to the examiner and the examiner types the code into a data field associated with the payment. Reconciliation can be accomplished by matching the authorization codes from the credit card statement to the authorization codes on the payment file.
Although the incorporation of authorization codes has proven to be the most effective method of enhancing reconciliation to date, it is extremely time consuming. The credit card administrator spends three to five additional minutes per payment on the phone in this process result in increased labor and capital expenses. The incorporation of authorization codes does not provide guaranteed reconciliation. Even by incorporating this time consuming method into the credit card process, it is shown that at best 85% of the payments can be reconciled. Additionally, the incorporation of authorization codes does not provide fraud or overcharge protection.
In a specific example regarding an insurance claim, when an insured customer needs a repair or replacement product, many service institutions require the insurance company to provide a credit card so that immediate payment is made. While the insurance company might prefer to send a check, the delay in printing, delivering, depositing and clearing such funds are not attractive to the service provider. The benefit of receiving credit card information is the speed in which funds and payment can be guaranteed.
The insurance company might take several approaches when providing credit card information. The insurance company may fax the service institution the credit card number with the authorized amount or call the service institution and read the number over the telephone. Frequently, the service institution and insurance company may disagree on what each considers appropriate charges. For example, in the case of a vehicle breakdown, the insurance company may agree to pay for a new water pump for the car but not for the charge to tow the car to the service bay. Often, the service institution, once in possession of the credit card information, will charge for work not authorized by the insurance company. Alternatively, the service institution may undercharge the credit card in view of the amount authorized. The inconsistency and fraud perpetrated on the insurance company and the credit card institution that issued the card results in substantial losses, particularly in view of the substantial amounts involved in warranty claims.
When the insurance company receives the credit card bill, the information contained in the statement is severely limited for reconciliation purposes. A single insurance company credit card statement may have thousands of different claim charges. Matching each charge by service institution and amount is often cumbersome if not impossible. As noted above, service institutions may overcharge or undercharge the authorized amount. Thus, there are no matching transactions to reconcile. Furthermore, if the service institution is a franchise multiple claims may be charged under the same franchise name, making reconciliation even more difficult.
What is needed in the industry is an improved means through which customers can provide payments to a merchant that provides additional fraud and overcharge protection while eliminating the need for tracking authorization codes and purchasing codes. A method of payment is needed that provides swift payment to the merchant while still allowing the payment service administrator to reconcile the merchant payments to the merchants and to the corresponding transactions.